Export promotion: India needs to focus on improving competitiveness

The Union government on Wednesday announced two schemes to provide relief to exporters and improve competitiveness. The shift in United States (US) trade policy has been the biggest source of global economic uncertainty this year and remains unresolved. India has been particularly affected by a 50 per cent tariff. Although US President Donald Trump recently said America was close to reaching a fair deal with India, given the recent experience, it is hard to say anything with certainty. Till the deal is announced, it will be difficult for Indian exporters, particularly small and medium-sized enterprises, to plan. Thus, it is expected that the new interventions will help these businesses to sustain and grow in the near to medium term.

 

In this regard, the credit-guarantee scheme for exporters provides additional financial support to eligible ones, including micro, small, and medium enterprises (MSMEs). The availability of collateral-free credit will help improve their liquidity and strengthen operations. It has been reported that orders have dried up for businesses focused on catering to the US market. It will be important for the system that such units survive this period of relative hardship and resume operations at capacity once the deal with the US is in place. As demonetisation and the pandemic had shown the country earlier, it is difficult to revive production units if they shut down owing to a lack of demand. Even if firms look for alternative markets, it would take time and that might not happen immediately. Thus, the availability of funds will help the exporting business. Since there is a government guarantee, risks for lenders will also be limited. The government should keep the option of increasing the support, if required, from the announced level of up to ₹20,000 crore.

 

The Export Promotion Mission, with an outlay of ₹25,060 crore, is for the medium term and will run till 2030-31. First announced in the Union Budget, the programme has two integrated sub-schemes. One will focus on the availability of affordable credit and related issues for MSMEs. The other sub-scheme will focus on non-financial enablers, such as transport, branding, and quality and compliance support. Businesses, particularly MSMEs, are often not aware of the available export opportunities and need some sort of handholding. However, the outcomes will depend on how some of these intentions are implemented.

 

Although arriving at a mutually beneficial trade deal with the US must remain the immediate priority, policymakers need to start addressing more fundamental issues related to trade. While India has signed a trade agreement with the United Kingdom and is negotiating one with the European Union, there is general reluctance on trade and the focus is usually on protecting domestic businesses. Over time, this has led to higher tariff and non-tariff barriers, affecting India’s participation in global and regional value chains. India is also not part of large mega-regional trade agreements. Given that the World Trade Organization has been rendered ineffective, regional trade agreements provide a rule-based trading environment, which can help improve prospects over time. Besides, India needs to improve its competitiveness in general. To be fair, several steps have been taken in this regard, and some state governments are also working in this direction, but the pace of reforms needs to improve. Exports can be a significant driver of demand, supporting high economic growth and job creation.